George Osborne has warned his Tory colleagues against pursuing “hard Brexit” - but said free movement of people is unlikely to survive Britain’s withdrawal from the EU.

The former chancellor also called Leave campaigners “naive” for expecting Britain to get everything it wanted from Brexit, in his first major speech since leaving Government.

Mr Osborne said the Brexit vote was “one of the low points” of his time in office and it had “sent shock waves around the world”.

He added that negotiations for Brexit were “the most important set of decisions Britain has faced since the Second World War”.

Mr Osborne, who left his post this summer and returned to the backbenches, urged the Prime Minister to pursue “the closest possible economic and security relationship with our European partners while no longer being formal members of the EU”.

He added: “I can’t see us consenting to the current arrangements around free movement of people that clearly caused such concern in the referendum.

“Equally, I find some of the take-or-leave it bravado we hear from those who assume Europe has no option but to give us everything we want more than a little naive.

“We need to be realistic that this is a two-way relationship: that Britain cannot expect to maintain all the benefits that came from EU membership without incurring any of the costs or the obligations. There will have to be compromise.

“Above all, we need to resist the false logic that leads from exiting the EU to exiting all forms of European co-operation - and that values the dangerous purity of splendid isolation over the practical necessity of co-operation in the real world.

“Brexit won a majority. Hard Brexit did not. The mainstream majority in our country do not want to be governed from the extremes.”

Speaking at the Chicago Council on Global Affairs, Mr Osborne said it would be “fanciful” to ignore the referendum result, comparing this to the actions of the East German government.

He also suggested the EU would not be in a position for serious negotiations until autumn next year, given the French and German domestic elections.

Mr Osborne also urged Britain not to turn its back on Europe, adding: “Each and every time we have tried to disengage from Europe, and wipe our hands of its problems, it has been a disaster for Britain and a tragedy for our continent.